Tax law unties some of the knots in employee fringes
Some of the confusion over the tax treatment of employee fringe benefits has been cleared up in the 1984 tax law. Why the confusion? The Internal Revenue Code specifically exempts some fringe benefits from tax. For example, up to $50,000 of group-term life insurance coverage, contributions to pension and profitsharing plans, employer-paid child care assistance, medical expense reimbursement plans, just to name a few. But for fringe benefits that aren't singled out by the code - for example, employee discounts on merchandise - there has been no clear cut tax treatment. Court decisions and government rules were sometimes contradictory.
The new law sets up special groups of fringe benefits that are tax-free, effective Jan. 1, 1985. If a fringe benefit doesn't fall into one of these groups - and isn't exempted by any other code provision - it is taxable.
A rundown of some of the fringe benefits that get a thumbs up under the new law is reported by tax information publisher Prentice-Hall.
* Employee discounts of up to 20 percent on services provided customers. These benefits are tax-free only if they are available to rank-and-file employees. The discounts can't be limited to owners or highly-paid employees.
* Employee discounts on merchandise, as long as they don't exceed the employer's profit margin.
* Free or low-cost parking given to employees at or near their job.
* Personal use of company property (e.g., copiers) as long as the personal use by all employees doesn't exceed 15 percent of the property's total use.
* Monthly public transit passes sold to employees at a discount of no more than $15.
* Occasional parties or picnics for employees.
* Taxi fares or supper money given employees once in a while for overtime work.
* Inexpensive holiday gifts to employees.
* Personal use of a demonstrator car by an auto sales person.